A Franchisor’s Guide To Choosing Franchisees

In Short

• Establishing a recruitment process helps you find franchisees who align with your business values and are committed to long-term success.
• Assess each candidate’s financial stability and relevant experience to minimise risk and support franchise sustainability.
• A comprehensive training programme is essential to ensure franchisees maintain quality and compliance from day one.

Tips for Businesses

Choose franchisees with a clear screening, financial, and training process. Screen for motivation and compatibility, review financial stability to reduce risk, and provide detailed training to set them up for success. Taking these steps can help protect your brand and support smooth franchise operations.

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Table of Contents

• 1. Develop a Recruitment Process
• 2. Consider Prior Experience
• 3. Undertake Financial Due Diligence
• 4. Develop a Comprehensive Training Module
• Key Takeaways
• Frequently Asked Questions

Choosing to franchise your business involves a lot of different commercial decisions. One of these is finding the right people to run the various branches of your franchises. These people are known as franchisees. Choosing the right franchisees is crucial in ensuring that your business’ reputation is upheld and your company continues growing. This article provides a few tips for you, a franchisor, to choose the right franchisees for your business. 

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1. Develop a Recruitment Process

As with any commercial exchange, you should seek people with whom to build a long-term business relationship. However, it may be difficult to conclude whether an interested party is a good match for your franchise business if you have limited information. A recruitment process can determine whether you can trust an interested party to operate the franchise business.  

Screening Process

Whether the interested party is the right fit may be determined through a screening process. It may include the requirements to complete:

• an application form;
• a one-on-one interview; and
• a test day at your business.

It is essential that the interested party is:

• motivated and interested in the franchise system;
• willing to commit to the franchise for the entire term and not only interested in selling the business; and
• open to comments and feedback.

2. Consider Prior Experience

Whether an interested party can operate the franchise may depend on their previous experiences. Considering their prior experiences helps determine the capability of an interested party to run the business. 

Business Experience

Franchisees enter franchise businesses for a multitude of reasons. Therefore, not all franchisees have previously run a business. However, this is not necessarily a negative attribute. The interested party may be more dependent on your instructions. Subsequently, they may be more willing to enforce your standards.

In comparison, parties that previously owned businesses may be more willing to take risks and operate outside the franchise standards. Of course, this differs for each interested party. Thus, you should assess this idea in light of their motivation to join your business.

Qualifications

An interested party’s relevant skill set and qualifications in operating a franchise business can be assessed by their prior experiences. Therefore, through analysing qualifications, you can determine:

• whether other workers are necessary; and
• the amount of training and investment needed for a particular interested party.

3. Undertake Financial Due Diligence

Assessing whether an interested party is financially capable of taking on the franchise business is essential. The due diligence process will also help you build trust in the franchisee before signing the franchise agreement.

Operating Costs

You should look at your operational costs to determine the ideal level of unborrowed capital or financing necessary for your business. Subsequently, you can use this information to assess whether the interested party is financially stable to commit to the franchise.

Asset Assessment

Further, you can request details of the interested party’s existing assets. You may also wish to have the option to register a security interest. A security interest allows you to access a franchisee’s property if they do not meet the obligations set out in the agreement. Therefore, with knowledge of the interested party’s existing assets, you will better understand the potential financial risk if the franchisee cannot comply with the franchise agreement.

4. Develop a Comprehensive Training Module

The quality and comprehensiveness of the initial training are the primary determinants of a franchisee’s compliance and success. You will have better results if you train the franchisee from the outset when they are fresh and keen to learn.

Treat the initial induction training as seriously as possible. McDonald’s requires prospective franchisees to undergo nine months of assessment and training before even being considered for a franchise. Your system may not be as rigorous, but it must be comprehensive. Furthermore, it should test the franchisee to ensure they understand their training.

Key Takeaways

By carefully screening franchisees upfront, you can significantly reduce (or eliminate) the risk of non-complying and problematic franchisees who will damage your brand.

If you need assistance when hiring franchisees, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions